MUMBAI: The rupee is set to extend its gains in the remainder of 2009 after rising sharply this week following the ruling Congress-led
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coalition's decisive victory in the elections, a Reuters poll showed.
Analysts say the election outcome has kindled hopes that a strong and stable government will undertake reforms, sell stakes in state assets and deliver policy that boosts growth, which should attract investment from foreigners.
The rupee has risen more than 4 per cent since the weekend's election result.
The Reuters poll of 12 analysts forecast it can rise another 2.6 per cent from Wednesday's close to end 2009 at 46.25 per dollar, which would be its highest level since September.
That would be a gain of 5 per cent over the year, and nearly 13 per cent from a record low of 52.2 hit in early March.
Sailesh Jha, senior regional economist at Barclays Capital, has become more positive on the rupee for a number of reasons, including the election, which could help boost economic growth.
"The central bank's exchange rate policy can accommodate significant appreciation as concerns shift to inflation from growth," Jha said.
"Balance of payment is likely to post large surpluses in the second half of 2009," he said.
The rupee has rebounded from its record low as foreign investors bought about $4 billion of stocks in the two months to Friday after risk appetite rose on signs the worst had passed for the global economy.
Foreign investment flows have been a key driver on the rupee in recent years.
In 2008, the rupee fell 19 per cent and the stock market lost more than half its value, with foreign investors selling more than $13 billion of stocks as the global financial crisis hit.
In 2007, the rupee rallied more than 12 per cent, helped by record net foreign flows into stocks of more than $17 billion.
The stock market rose 15.5 per cent in the first three days after the election, with foreigners buying more than $1 billion of stocks on Tuesday alone, and is expected to remain a positive factor for the rupee.
Two of the 12 economists in the poll saw the rupee weakening past 50 per dollar by the end of the year, but others said the Reserve Bank of India might have to stem the strength of the rupee if money kept flowing into stocks and the broader economy.
"While flows are likely to remain good, RBI will allow only a gradual appreciation," Yes Bank chief economist Shubhada Rao said.
"Export growth is key to India's manufacturing sector revival and a sharp rupee appreciation may delay that."
Growth in India, Asia's third-largest economy, is expected to have slowed to below 7 per cent in the financial year to the end of March 2009 after three years at or above 9 per cent, and is expected to hit a seven-year low of 6 per cent of less in 2009/10.
